Back to: Auditing
Today’s topic is one that is confusing many people. Some say “Auditing and Accounting are the same thing.” But today we will clear the confusion.
Get ready – open your jotters and let’s go!
Lesson Objectives:
By the end of this class, students should be able to:
Explain the meaning of auditing and accounting.
List at least four differences between auditing and accounting.
Understand how both are related, but not the same.
Differences Between Auditing and Accounting
Meaning of Accounting:
Accounting is the process of recording, summarising, analysing, and reporting financial transactions of a business. It tells us how much money is coming in and going out, and helps to prepare financial statements like the balance sheet, income statement, and cash flow statement.
In short, accountants prepare the books.
Meaning of Auditing:
Auditing is the process of examining and checking those financial records to see if they are correct, complete, and follow the rules. It is usually done by someone who was not part of preparing the records.
In short, auditors check the books after the accountants have finished.
Key Differences Between Auditing and Accounting:
Feature
Accounting
Auditing
Meaning
Recording and preparing financial records
Examining financial records
Objective
To show the financial position of the business
To confirm if the records are true and fair
Timing
Done daily, weekly, or monthly
Done after accounting, usually yearly
Who does it?
Accountants
Auditors
Output
Financial statements
Audit report
Nature of work
Continuous process
Periodic process
Independence
Accountants work inside the business
Auditors are often external and independent
How Are They Related?
Even though auditing and accounting are different, they work together. Auditing depends on accounting. If there is no accounting, there will be nothing to audit. So accountants and auditors must work hand in hand, but with different duties.
Example:
Let’s say a school bursar records all the money collected from students – that is accounting. Now, if the school board wants to confirm that the money was handled properly, they can invite an auditor to check – that is auditing.
Why the Confusion?
People mix the two because both deal with money and records. But one prepares the records (accounting), and the other checks them (auditing). Just like a cook prepares food, and a food inspector checks if it is safe to eat.
Summary of Lesson:
Accounting is about recording and reporting financial transactions, while auditing is about checking those records for correctness and honesty. They are related, but their purposes and timing are different. Accounting comes first, and auditing follows.
Evaluation:
What is the main purpose of accounting?
What is the main purpose of auditing?
Mention three differences between accounting and auditing.
Who is responsible for preparing financial records?
Can auditing happen without accounting? Explain briefly.
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